Economics HW

Economics HW

4. Consumer surplus for an individual and a market

The following graph shows Brian's weekly demand for pizza, represented by the blue line. Point A represents a point along his weekly demand curve. The market price of pizza is $3.00 per slice, as shown by the horizontal black line.

From the previous graph, you can tell that Brian is willing to pay __$___________

for his 8th slice of pizza each week. Because he has to pay only $3.00 per slice, the consumer surplus he gains from the 8th slice of pizza is __$__________.

Suppose the price of pizza were to fall to $2.25 per slice. At this lower price, Brian would receive a consumer surplus of __$__________from the 8th slice of pizza he buys. The following graph shows the weekly market demand for pizza in a small economy.

Use the purple point (diamond symbol) to shade the area representing consumer surplus when the price (P) of pizza is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional consumer surplus when the price falls to $2.25 per slice.

5. Producer surplus for a group of sellers

The following graph shows the supply curve for a group of sellers in the U.S. market for smartphones (orange line). Each seller has only one smartphone to sell. The market price of a smartphone is shown by the black horizontal line at $150.

Each rectangle on the graph corresponds to a particular seller in this market: blue (circle symbols) for Dmitri, green (triangle symbols) for Frances, purple (diamond symbols) for Jake, tan (dash symbols) for Latasha, and orange (square symbols) for Nick. (Note: The name labels are to the right of the corresponding segment on the supply curve.)

Use the rectangles to shade the areas representing producer surplus for each person who is willing to sell a smartphone at a market price of $150. (Note: If a person will not sell a smartphone at the market price, indicate this by leaving his or her rectangle in its original position on the palette.)

Based on the information on the preceding graph, you can tell that __________  (# of sellers) will sell smartphones at the given market price, and total producer surplus in this market will be $_________.

Suppose the market price of a smartphone decreases to $90.

On the following graph, use the rectangles once again to shade the areas representing producer surplus for each person who is willing to sell a smartphone at the new market price: blue (circle symbols) for Dmitri, green (triangle symbols) for Frances, purple (diamond symbols) for Jake, tan (dash symbols) for Latasha, and orange (square symbols) for Nick. (Note: If a person will not sell a smartphone at the new market price, indicate this by leaving his or her rectangle in its original position on the palette.)

Based on the information in the second graph, when the market price of a smartphone decreases to $90, the number of sellers willing to sell a smartphone _______  (decreases, increases)  to _______(# of sellers) , and total producer surplus _______ (decreases, increases)  to _$_______.

6. Producer surplus and price changes

The following graph shows the supply curve for a group of students looking to sell used economics textbooks. Each student has only one used textbook to sell. Each rectangular segment under the supply curve represents the “cost,” or minimum acceptable price, for one student. Assume that anyone who has a cost just equal to the market price is willing to sell his or her used textbook.

Region A, the purple shaded area represents the total producer surplus when the market price is $___________, while Region B, the grey shaded area represents __________ (the change in total producer surplus, the total producer surplus), when the market price ____________ (changes from $100 to $140, changes from $160 to $140, is $140, is $100) . .

In the following table, indicate which statements are true or false based on the information provided on the previous graph.

Choose True or False
T F Producer surplus is larger when the price is $140 than when it is $100.
T F Assuming each student receives a positive surplus, Bob will always receive more producer surplus than Cho.

In order for Lucia to earn a producer surplus of exactly $60 from selling a used textbook, the market price needs to be $_____________.

7. Producer surplus for an individual and a market

Suppose the market for apple pie is a perfectly competitive market—that is, sellers take the market price as given. Jacques owns a restaurant where he sells apple pie. The following graph shows Jacques's weekly supply curve, represented by the orange line. Point A represents a point along his supply curve. The price of apple pie is $3.00 per slice, as shown by the horizontal black line.

From the previous graph, you can tell that Jacques is willing to supply his 8th slice of apple pie for $__________

 each week. Since he receives $3.00 per slice, the producer surplus he gains from supplying the 8th slice of apple pie is

$_______.

Suppose the price of apple pie were to rise to $3.75 per slice. At this higher price, Jacques would receive a producer surplus of _$________from the 8th slice of apple pie he sells.

The following graph shows the weekly market supply of apple pie in a small economy.

Use the purple point (diamond symbol) to shade the area representing producer surplus (PS) when the price (P) of apple pie is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional producer surplus when the price rises to $3.75 per slice.

8. Total economic surplus

The following diagram shows supply and demand in the market for laptops.

Use the black point (plus symbol) to indicate the equilibrium price and quantity of laptops. Then use the green point (triangle symbol) to fill the area representing consumer surplus, and use the purple point (diamond symbol) to fill the area representing producer surplus.

Total surplus in this market is $__________million.

9. Market efficiency and market failure

Suppose that the following graph shows a free market equilibrium, with QE

 as the equilibrium quantity.

For an output level below QE, the value of a unit to a buyer is ________(equal to, greater than, less than) the cost of a unit to a seller.

Suppose a firm that produces for this market is able to influence the market price, which leads to an outcome that differs from the free market equilibrium shown in the previous graph. Such a situation is characterized by

_____(an externality, market power), which is an example of _________(inefficiency, consumer surplus).